It was another weak performance from both European and US stock markets yesterday, despite much better than expected US economic data and a dovish ECB press conference from Mario Draghi, who struck a fairly relaxed tone when it came to the subject of the recent sharp rise in inflationary pressure within the euro area.

In fact Mr Draghi’s tone only served to reinforce the increasing divergence between the ECB’s policy stance and the US Federal Reserve, and the more hawkish tone from Fed chief Janet Yellen in remarks made over the last couple of days.

The ECB President’s cautious tone suggests that for all the improvement in recent economic data he has concerns that the recovery still rests on very shaky foundations.  

It feels like it’s been a long time coming and while financial markets have had a while to get used to it the day has finally arrived. It’s been 73 days since Donald Trump won the US election and the phoney war is about to come to an end as the world gets ready for the inauguration of the 45th President of the United States.

Financial markets, having rallied strongly since November 8th are now showing the first signs of some nervousness as investors now adjust to the reality and immediacy of a Trump Presidency, with the Dow declining for five days in succession.

Having overdosed on the expectations of significant tax cuts and infrastructure investment the question now moves to whether the new President will be able to deliver on his campaign promises now that the time has come for action to replace all of the words.

One thing that has become increasingly obvious is that the new President isn’t afraid to air what’s on his mind as a number of company CEO’s have found out in the past few weeks, coming under fire from his Twitter account as Mr Trump looks to hit the ground running.

This is likely to make his inauguration speech required listening, given how last week’s press conference shed little detail on what to expect with respect to additional details on policy. The tone of it is also likely to be important in the context of how Presidential he sounds. Will he be inclusive in the manner of his speech of November 9th or will it be more of the same?

Before that we have the small matter of economic data from China and the UK, where we’ve seen significant improvements in economic data in the last quarter of 2016.

China’s economy expanded at a rate of 6.8% in Q4 with an rise in retail sales driving that improvement in the last months of 2016. Retail sales rose 10.9% above expectations of a rise of 10.8%. This rise of 10.9% was the best number since December 2015 when retail sales rose 11.1%.

Industrial production rose 6%, slightly down from 6.2%, rather surprising given recent PMI data which showed that demand for iron ore and other raw materials rose towards the end of last year.

Here in the UK the pound has put in a strong performance this week and the hope is that the good news data wise continues with the release of the final retail sales number for 2016, in the form of the December numbers.

Some of the recent trading updates from various retailers would appear to suggest that December saw a decent expansion in retail sales, though you wouldn’t know it to see what expectations are for the monthly numbers. A decline of -0.3% excluding fuel is expected, though the annualised number is expected to 7.6% from 6.6%.

EURUSD – has continued to hold above the trend line support at 1.0550 from the lows this year, and while it does so the short term uptrend remains intact, with the potential for a move towards 1.0800. A move below 1.0540 retargets the 1.0450 area.

GBPUSD – has found a level of support around the 1.2250 area, and with resistance up near the 1.2430 area the potential for further gains remains, given the failure to take out the 1.1980 area. A move through 1.2440 has the potential to trigger a move towards the December highs at 1.2800.

EURGBP – made a low of 0.8609 yesterday before rebounding but remains vulnerable to a move towards the 0.8480 area and needs to break back above the 0.8750 area to retarget the recent highs. A move through the 0.8580 could well be that catalyst for a move lower.

USDJPY – yesterday’s sharp rally ran into resistance at 115.80 before falling back below 115.00. A move back below 114.30 would retarget the 112.55 area, while a move above 116.00 retargets the 117.00 area.

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